Copyright 2001 Federal News Service, Inc.  
Federal News Service
June 5, 2001, Tuesday
SECTION: CAPITOL HILL HEARING

LENGTH: 16727 words

HEADLINE: HEARING OF THE HOUSE JUDICIARY COMMITTEE
 
SUBJECT: INTERNET FREEDOM AND BROADBAND DEPLOYMENT ACT OF 2001
 
CHAIRED BY: REPRESENTATIVE F. JAMES SENSENBRENNER, JR. (R-WI)
 
LOCATION: 2141 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES:
 
TOM TAUKE, SENIOR VICE PRESIDENT FOR PUBLIC POLICY AND EXTERNAL AFFAIRS, VERIZON;
 
CLARK MCLEOD, CHAIRMAN AND CO-CHIEF EXECUTIVE OFFICER, MCLEODUSA;
 
MARGARET BREEN, EXECUTIVE VICE PRESIDENT FOR REGULATORY AND EXTERNAL AFFAIRS, BELLSOUTH CORPORATION;
 
JIM GLASSMAN, RESIDENT FELLOW, AMERICAN ENTERPRISE INSTITUTE
 


BODY:
He has had a long and distinguished career in the publishing world holding executive positions with the Washingtonian, New Republic, Atlantic Monthly, US News and World Report, and Roll Call. He has published articles in a wide variety of newspapers and magazines and appeared on numerous television and radio shows. In addition to his duties at AEI, he is currently the host of a politics and technology website called TechCentralStation.com.

And I would now like to ask the gentleman from Alabama, Mr. Bachus, to introduce Ms. Greene.

REP. SPENCER BACHUS (R-AL): Thank you. Mr. Chairman, it's my extreme pleasure to introduce Ms. Margaret Greene. She is a Nebraska native, graduated from the University of Nebraska and the law school there. But she joined Bell South in 1981 in Birmingham, Alabama in the Legal Department. Since that time, she has risen quite rapidly through the ranks at Bell South. In 1991 she was named president of all Bell South's operations in the state of Kentucky. While serving there, she took a leave of absence and served as cabinet secretary for the governor of Kentucky. When she rejoined Bell South, she was named general counsel of Bell South Telecommunications. And then in 1998 she was promoted to executive vice president for Regulatory and External Affairs. There she is responsible for and heads up all of Bell South's regulatory, legislative. governmental and public affairs areas.

We're very proud of Ms. Greene in Alabama and proud that she joined Bell South in Alabama. I welcome you.

REP. SENSENBRENNER: Would each of you please rise and raise your right hand, take the oath? Do you and each of you solemnly swear that the testimony you are about to give before this committee will be the truth, the whole truth, and nothing but the truth so help you God?

WITNESSES: (In unison.) I do.

REP. SENSENBRENNER: Let the record show that each of the witnesses answered in the affirmative. Without objection, each of your written statements will be included in the record. At that part where your testimony appears we would like to ask each of you to summarize your statement in about five minutes. The red light will go on and it will be somebody else's turn at that point in time.

And you are first, Mr. Tauke.

MR. TOM TAUKE: Thank you, Mr. Chairman and members of the committee. It is an honor to be here, and I appreciate the opportunity to discuss HR-1542, legislation which we support. Mr. Chairman, the nation today does not have a policy for broadband services. We all recognize that broadband or high-speed data services are critical for the future growth of the economy, very important for the delivery of a number of social services ranging from education to healthcare. Good broadband services can even improve the operation of government. Yet today, we don't have a broadband policy. Act was adopted, Congress established in Title II a policy for telephony services. And in Title VI Congress established a policy for cable services. And despite efforts by many players, Congress did not establish a Title VII for broadband services as had been promoted at that time. So there was no policy established for broadband, and we have had confusion for some time. In fact, three separate circuit courts of appeals have addressed the issue of what rules apply to broadband, and each of the three reach different conclusions.

The nation needs a broadband policy, and that's the first reason why we support HR-1542. Our belief is that that national policy should be focused on achieving two goals. One is the deployment of broadband services so that your constituents and our customers can get those services as rapidly as possible. Secondly, the policy should promote competition in the broadband marketplace where today there is very little competition.

We believe that HR-1542 again encourages and achieves those goals. In essence, HR-1542 stops the application of rules that were intended for the voice telephony market to the broadband services market. These are two very distinct markets. Voice telephony is an old technology, an old service. The broadband high-speed Internet market is a very different market. And the rules for telephony just don't work when applied to the broadband market.

What this act in essence boils down to in the practical world is two things. One, it lifts the restrictions on interlata services in the broadband arena. In other words, those boundaries that were set up at the breakup of AT&T would not apply to data services. They would continue to apply to voice services but not to data services.

Secondly, it would eliminate one thing called line-sharing over the local loop, the last mile to the home, when fiber is deployed in that local loop, and it would eliminate line-sharing over local loop when fiber is in it because we don't know how to do that or do it efficiently. And so as a result, those who wanted to reach the local loop or local customer where competitors would have to buy the whole local loop, not just take a piece part of it.

Let me speak specifically to the interlata piece for a moment. Under the 1996 Act Congress established a methodology under Section 271 whereby regional Bell operating companies could enter the long distance market, and a number of us are working through that process. That market, the voice telephony market, is $ 100-plus billion market. The data market is about a $ 6 billion market. What we are seeking in this legislation is to be able to enter that data market in order to be able to deploy networks.

Now why is this important for public policy reasons? Well, if you look at the market or the technology for the Internet, you'll find that there are two kinds of interlata services if you will. One is the long-haul market, backbone market where there's quite a bit of that. But when I represented Iowa I knew that all those airline flights from New York to Los Angeles didn't do any good unless there was a regional network which allowed you to get to O'Hare Airport so you could get on one of those long-haul flights.

What our challenge is, is to build those regional networks which aren't being built rapidly enough today in order to hook up local customers to the long-haul or broadband, long-bite markets. Now, we believe that this legislation does that. And it will help many of you in your districts. Take for example Southwest Virginia District where --

REP. SENSENBRENNER: The time of the gentleman has expired.

MR. TAUKE: The clock didn't move, Mr. Chairman.

REP. SENSENBRENNER: Well, we'll fix that.

(Laughter.)

MR. TAUKE: It's still green.

REP. SENSENBRENNER: Let me point out to each of the witnesses that the referral to this committee by the speaker is specifically quote, for consideration of such provisions of the bill and amendment recommended by the Committee on Energy and Commerce as proposed and narrow the purview of the attorney general under Section 271 of the Communications Act of 1934. And I think the committee would appreciate the witnesses addressing that particular issue because anything else in the Tauzin Dingell Bill is out of bounds for this committee to consider.

Would you like an additional minute, Tom?

MR. TAUKE: Mr. Chairman, I was watching the green, and it never moved off green, so yes I would.

REP. SENSENBRENNER: Okay.

MR. TAUKE: In Mr. Boucher's district we have a situation where there is no regional network. And his district is not alone. You can't get from areas in his district to other areas where you can hook into the broadband network, the long-haul broadband network. Why is that? Because there is no regional network that has been built. In order to get out of Mr. Boucher's district, you have to go to Johnson City, Tennessee or to Charlottesville, Virginia, in order to hook into the long-haul networks.

But there is no high-speed data network from his district to those locations, and Verizon which serves much of his district can't build it because of the interlata restrictions.

The interlata restriction lifting that would allow us to build that network; yet we would still have all the incentives to continue to open up our network pursuant to the 271 process in order to get at the $ 100 billion voice long distance market where the money still is in the long distance arena.

So Mr. Chairman, we believe that this legislation will promote deployment of broadband networks and facilities and services, and it will encourage competition in both the long-haul and the last- mile market for broadband services.

REP. SENSENBRENNER: Thank you.

Mr. McLeod.

MR. CLARK MCLEOD: Thank you, Mr. Chairman. Thank you, Committee, for inviting me to testify today.

I'll highlight three areas. First, a little background on myself and the two companies that I've been involved with in the 20 years that I've been in the competitive industry, to 1542 specifically, and our opposition to 1542. And the third area would be what we would see as the ability for the judiciary to move forward in a more constructive fashion.

On the first point, 20 years in competitive telecom I guess I'm the only one on the committee that has gone through the long distance industry and now the opening of the local industry. In the 1980s we built a company which was the fourth largest long distance company in the U.S. The reason I bring that up is, I think the long distance industry presented a model for opening up monopolized markets. Within five years of opening up the market, five years following divestiture, competitive companies had over 30 percent share of the long distance industry. Today we have 8 percent, all of the competitive providers, after five years of the '96 Telecom Act.

Secondly, the experience that we have had in the CLEC business starting in 1996 we have grown the largest independent CLEC operation and because of that I think I can provide some specific testimony to you today.

1542? Well, it clearly restrains competition, no ands, ifs or buts about it. It strengthens the Bell monopoly by restricting access to the local loop. It removes the carrot that was placed in the 1996 Act of allowing the long distance companies into interlata services, moves that carrot prematurely, and finally the real garret is the fact that this legislation actually restricts our access to the Bell network.

So the bill is being held out as helping rural America. We are helping rural America. We are building fiber networks of the type that Mr. Tauke has talked about, and as far as increasing DSL services the Bell companies are providing DSL services as fast as they choose to today. They have 75 percent share.

So I would ask the Judiciary committee to oppose HR-1542, take it off the table. It's very destructive. It's moving our industry towards remonopolization. It's causing financial markets to go away completely. We have no access to capital today to build new networks. 1542 has no redeeming characteristics.

Let me segue for a moment into the long distance marketplace of the '80s. That was a model for competition because it mandated equal access by competitive providers. Think about if all competitive providers had equal access to the Bell networks for provisioning services, then broadband services would be deployed very rapidly. But what do we have today? We actually have unequal access. We have access to a network that maybe 20 or 30 percent of the time we don't receive our orders on time and our customers become frustrated and go back to the Bell companies.

And for this, we're paying as if we're getting the service 100 percent of the time.

In the telecom arena in the 1980s there was a special period where competitive companies had a transitionary period to when they got equal access. And we received lower costs for our services for the services that we bought from the Bell companies during those periods of time. The economic pressure that's on the competitive industry is, we're paying too much, we're getting too little, and the monopolies that are controlling this marketplace have been able to put forward legislation like 1542 which really heads our industry back towards remonopolization.

I would hope that the committee would oppose 1542, get it off the table, and look towards the future of moving our industry back to a competitive industry and stop the trend towards remonopolization. Thank you, Mr. Chairman.

REP. SENSENBRENNER: Thank you, Mr. McLeod.

Ms. Greene.

MS. MARGARET GREENE: Mr. Chairman, Ranking Member Conyers, members of the committee, good afternoon and thank you for the opportunity to appear before you today to testify on HR-1542. This is a critical piece of legislation, and its passage is necessary to help achieve the economic promise of the digital age.

My goal in my testimony is to outline for you the incentives and disincentives currently at work in the telecommunications industry and outline how the Tauzin-Dingell Bill can help clarify those incentives.

In the '96 Act, Congress outlined a four-pronged policy designed to change the competitive dynamics of the local exchange telephone market. In implementing this legislation, the FCC focused on but one of the four goals -- creating competition. In order that local exchange companies make their network available to their competitors in total or piece-parts at a regulatorily-set price, that price imagines that the local exchange companies have totally efficient, state-of-the-art networks. In addition, our retail prices are set by regulators at the state and federal level.

Let's look at some real numbers to see how this regulatory policy has driven behavior. Competitive local exchange companies have flocked to the business markets in the metro areas. They have largely avoided the residential rural areas. Their behavior is driven by regulatory policy. In Georgia 120 competitors serve 800,000 lines. They're concentrated in metro areas, and most are competing for exactly the same customers in exactly the same geography.

The regulatory prices explain why. Our retail rate for a business in metropolitan Georgia is $ 48.30. This is a rate set by regulators in a noncompetitive era intentionally above cost to subsidize residential rates. The wholesale rate set by regulators is $ 14.21. Our retail rate, $ 48.30; competitors' wholesale rate, $ 14.21. The $ 34 difference between those rates is the potential profit margin available to our competitor.

The same difference is the potential profit margin lost to us because of a regulatory rule change. Behaviors of competitors are clear and rational. They go where the money is. to metropolitan, business customers, and they have flocked to that market. In several areas of our cities we currently have below 50 percent of the business market share, but in rural Georgia we don't have a lot of competition yet for residential customers. This is no surprise since regulation encourages competitors to go elsewhere. The regulators set our rural residential retail rate at $ 12.50, the wholesale rate $ 26.08. Our competitors would have to pay $ 26.08 to gain access to a $ 12.50 revenue stream. This is not an incentive for competitors to invest and their behavior reflects that. They continue to avoid the residential market.

Neither is it an incentive to invest for companies like mine. Implementation of regulatory policy to date has sent one signal to local exchange companies. Your traditional profit margins are open to attack, and you can't do anything about your underwater rates. If you were a business owner, what would your likely response to this message be? It would be one of caution, and you would want more information before you committed to an investment that you may have to make available at terms you did not count on when you placed the investment.

I outline these numbers for you, not to complain about the implementation of the '96 Act but rather to make a point about investment. Investment is like water. It goes naturally to the open course; it flows where there's the least impediment, avoiding narrow or dammed-up opportunities. Regulation has created open flows, and it has created dams in the flow of competitive investment to the local exchange market.

Broadband is not the existing telephone plan that was the subject of the '96 Act and yet it is increasingly treated as such. Broadband requires investment and lots of it. New networks have to be built, new things have to be put in place -- things with names like DSL and D-slams and remote terminals. The decision to place these new investments are influenced by factors like, where is the open course, what will the rules be impacting my decision to invest, when and where will I get my money back?

The broadband networks we are building and will build do not exist in a vacuum. They are introduced into a marketplace where competition is dominated by the cable companies that outrank us three to one in investment. The Tauzin-Dingell Bill would put a stop to the fact that their investment is not regulated and ours is. It's a bill designed with a built-in compromise; it treats traditional plants in exactly the same way as it's treated today, and yet it treats the new plant and new investment in an unregulated and more market-friendly way reflecting the competition that exists in the marketplace today.

We need a clear broadband policy. Tauzin-Dingell is that policy.

REP. SENSENBRENNER: Thank you, Ms. Greene.

Mr. Glassman?

MR. JIM GLASSMAN: Thank you, Mr. Chairman, Mr. Conyers, members of the committee. Thank you for inviting me here today to share my views on HR-1542. My name is James K. Glassman. I'm a resident fellow at the American Enterprise Institute.

There's a crisis in the deployment of fast Internet services, broadband connections. This crisis is destroying whole industries, damaging the economy and frustrating American families. HR-1542, the Tauzin-Dingell Bill, is being promoted as a way to boost deployment of high-speed data services. In fact, it will produce the opposite result. Without competition, the rollout of broadband will be slowed, even stopped in its tracks. The bill will do substantial harm, not just to competitive telecom companies or CLEC but to the U.S. economy. In fact, the series of studies that I am conducting with two economists shows that this bill by increasing uncertainty has helped dry up the flow of capital, destroy CLEC and harming the economy.

Very simply, you cannot have real consumer choice and the benefits that flow from it without competition, and you cannot have competition without competitors. HR-1542 would eviscerate the crucial provisions of the Telecommunications Act of 1996 that created the CLEC industry -- once a $ 200 billion industry and now one-fifth that size in market capitalization. The bill would, make no mistake, kill that industry, kill the competitors both current and future.

And without competitors, the Bells, once seven companies and now just four regional monopolists, will expand their monopoly from local service, to long distance, to Internet services. This appears to be what some in Congress actually want. They assume that if we will trust benign monopolists they will bestow wonderful benefits on American consumers. This is a dangerous fantasy. We have tried it before, it doesn't work.

And Mr. Chairman, if there is an antitrust issue for this committee, this is it.

Instead it is competition that best serves consumers, all consumers including the poor, inner city residents and rural families. Before there was competition, for example, the Bells kept their high- speed DSL technology on the shelf. Why deploy it if not pressed by competition? That will be their behavior when they emerge again as end-to-end monopolists.

Some of the backers of this legislation call it "deregulation." I have devoted much of my career to advocating deregulatory, free- market solutions to economic and social problems. I know deregulation when I see it. This is not deregulation. Instead, HR-1542 will allow the Bells to crush the remaining CLEC opposition and extend their monopoly.

And what will Congress do when this state of affairs becomes evident? It will reregulate, of course. You know as well as I do that you will not sit there and allow such a powerful monopolist to set prices, quality and extent of service in your communities. Congress will step in with strict mandates. We are already seeing that response to HR-1542; in the Commerce Committee provisions were added to set deployment timetables. There will be more such mandates on the monopolists as in fact there should be.

In short, this bill causes reregulation.

HR-1542 and its predecessor last year has already severely damaged the CLEC industry. This is one of the preliminary findings of studies that I am completing with two economists -- Kevin Hassett of the American Enterprise Institute and William Lehr of MIT. The uncertainty generated by this bill and the possibility that the Bells will destroy what is left of the CLEC industry if it passes have helped dry up the flow of capital to CLEC and have damaged the U.S. economy as a whole.

Five years ago a group of risk-taking entrepreneurs went into the telecommunications market against tough odds. They were comfortable at least that a new law would force the Bells to share at reasonable cost the physical infrastructure that they had built up over a century as a protected, subsidized monopolist. But what HR-1542 proposes is to pull the rug out from under these CLEC entrepreneurs -- what's left of them. That's more than unfair; it is damaging to the economy.

As an editorial in the Los Angeles Times put it, HR-1542 is, quote, "a proposal without logic. The change would only strengthen the Bell's chokehold on local service and remove any incentive to compete and innovate," end quote.

Our research shows that the bill has already done that. The chokehold has nearly killed the CLEC, and if this bill progresses it will surely finish the job of ending competition. That is why it must be stopped and stopped now, stopped here and not in the Senate. Thank you.

REP. SENSENBRENNER: Thank you very much, Mr. Glassman.

The chair will enforce the five-minute rule on members, and members will be recognized alternatively on each side of the aisle and in the order in which they appeared at the beginning of the hearing. So I will recognize myself for five minutes.

Mr. Tauke, are you familiar with the decision of the U.S. Court of Appeals in the Seventh Circuit in the case of Goldwasser (ph) versus Ameritech?

MR. TAUKE: Mr. Chairman, I am familiar with it -- not as familiar as my legal counsel Mr. Barr who testified at the last hearing.

REP. SENSENBRENNER: Do you think that decision was correctly decided?

MR. TAUKE: I believe as he testified that the decision at least as we understand the decision, and I understand that there is some difference of interpretation, was essentially correctly decided. As we understand the decision, it merely indicated that a violation of the Telecom Act of 1996 is not necessarily a violation of the antitrust laws. However, the antitrust laws as they stood before the '96 Telecom Act remain in place today, and we are subject to them.

REP. SENSENBRENNER: I don't agree with you, and I don't agree with Mr. Barr. Seems to me that what the Seventh Circuit decided was that the antitrust savings clause in the Telecom Act of 1996 did not apply to Section 271 applications by Baby Bells or RBOCs into the long distance and broadband market.

Now, assuming for the sake of argument that is a correct interpretation of the decision, do you think that an RBOC should effectively have an antitrust exemption in this market while everyone that the RBOC competes with is subject to the antitrust laws as they are written?

MR. TAUKE: I believe that our view is that we should, we are subject to the antitrust laws, and we do not anticipate that the passage of this legislation would alter that, that the savings clause of the '96 Act was not overturned by Goldwasser.

I mean, you obviously have a differing view. We don't see it that way, and we believe that the passage of this legislation would not exempt us from application of the antitrust law.

REP. SENSENBRENNER: Would you support an amendment to the Tauzin-Dingell Bill that would clarify this confusion on what the Goldwasser holding was to ensure that the antitrust laws were applied equally to an RBOC entry into the broadband market as to a competitor who was not an RBOC?

MR. TAUKE: From a policy perspective, I believe we are not trying to get out from under the antitrust laws and believe that they do apply and do not object that they apply to our company. And so from a general policy perspective I don't believe there is an objection. Obviously we'd want to see the wording of any amendment before making a judgment.

REP. SENSENBRENNER: Thank you. The gentleman from Michigan, Mr. Conyers.

REP. CONYERS: Thank you, Mr. Chairman. And I want to congratulate the witnesses for joining us here today.

We're in a situation here, and this committee and this hearing is very important because if we send a strong message to the Congress that the game is up here and that we're not going to allow the Telecommunications Act of '96 to be rooted out, as the Bells in an extremely aggressive move -- they've been so profitable that they are combining with each other now. They're getting stronger and more powerful, and yet they're claiming, "We can't get out to the rural areas. I mean, it's really tough. We wish we could. We need more power, we need to knock the long distance out even further so that we can really take over this thing completely. And then we'll get you service."

And so I come here slightly stunned at the nerve of companies that control typically 96 to 98 percent of the residential lines, over 90 percent of the business lines, and they say, we need more. I mean, it looks like you Bells would be tipping around hoping that nobody calls you to task or that an oversight committee like Judiciary doesn't step in. But, no. You bring legislation forward that says, give us more. "We've kept out long distance. We're making huge profits. We're merging with each other we're so successful, but that isn't quite enough."

And so I come here hoping that through all of this very important and technical presentation that we're being given that the truth will come out very clearly to all of the members. I commend the chairman for these hearings. I think they're critical.

Now, we've got this provision in here that talks about the build- out. 1542 requires the Bells to provide broadband services to under- served areas within five years, but the former attorney general of the United States, William Barr, said that Verizon is, quote, "not happy with the requirement."

In other words, all that you're getting is still not enough, that the Tauzin-Dingell Bill is tough on the Bells and they want to strip that provision out -- which I think should shock a lot of people. I'm not going to ask those that represent them whether they will support the provision. I mean, it would be pretty hard for me to guess that you'd say no in broad daylight. But we found out what you think about the Telecommunications Act after we signed it and touted it that it would create competition. We find out where we are now.

And then there's another little piece called the "state preemptions" in which we just excuse public utility commissions, all of whom oppose HR-1542 and whose job it is to protect consumer interests -- and not to mention, all the other consumer organizations that are dead set against it, plus a whole host of new industries that have been created by the Telecommunications Act that would be given the death knell as already been carefully explained.

So what do you think of that, you wonderful witnesses here?

(Laughter.)

Well, I don't have much time, Mr. Chairman.

REP. SENSENBRENNER: Four seconds to be precise.

REP. CONYERS: Well, you're over-generous today as usual.

REP. SENSENBRENNER: The time of the gentleman has expired.

REP. CONYERS: Thank you very much.

REP. SENSENBRENNER: The gentleman from California, Mr. Issa.

REP. DARRELL E. ISSA (R-CA): Thank you very much, Mr. Chairman, and thank you for holding these hearings. I must say that I'd like an answer to that last question if there's time left at the end of my time. But I guess my first question would be for Mr. Tauke and Ms. Greene.

If this is such a good idea, why is it that every PUC, especially in my case California's, has opposed this bill? If you could give me a short answer that maybe I could understand?

MR. TAUKE: I think, Congressman, that the simple -- first of all, every PUC I do not believe does oppose the legislation. But secondly, a number of them do, and it's not surprising.

Whenever Congress begins to take power away from regulators, regulators always fight for their jurisdiction, and that's essentially what's happening here.

But this is a worldwide Internet without boundaries, and trying to regulate it on a state-by-state basis is virtually impossible, and certainly a policy that seeks to do that would be very difficult to enforce.

REP. ISSA: Okay. That's a fair answer. Ms. Greene?

MS. GREENE: I think there's an other factor here. And that is, this sort of mixed metaphor that has happened even in the discussions we've been having so far today. 1542 does not change in any way the '96 Telecom Act as it applies to traditional telephone plant. What we're talking about in 1542 is broadband plant, new plant that will have to be built and it's being built today. That plant is not built in a monopoly environment. That plant is built where we have four existing technologies as the service platform, and one of those, cable, already enjoys over a 70 percent market share. So --

REP. ISSA: Okay. I appreciate that, and thank you for the answer to the question. Maybe to help you get into the next question, as you may or may not know I just came from the private sector, and in my own company less than three miles away from a central station I requested a DSL and a T1. And the DSL had it been deliverable -- never quite got the reason it wasn't deliverable and ran out of time -- but had it been deliverable, since it was qualified and it was technically within a CLEC rollout area, would have been -- and this is for one MIP plus T1 speed -- it would have been $ 200-and-some with fixed IPs. My T1 in my previous building and then in my next building had been $ 1,000, and then we were able to contractually get it down to slightly less than $ 800.

What I'm not sure I understand is, I'm hearing about all this competitiveness that's already available. My T1s predate the 1996 Telecommunications Act. I'm concerned that in fact the Bells have not had real competition in data that existed prior to that time that in theory I have to accept that the 1996 Act intended to open competition for.

Can one of you from the Bell side answer that?

MS. GREENE: I'm not sure that I understand exactly what you're asking, but the only thing that I would say is that nothing in Tauzin- Dingell would change in any way the DLEC access and competitors' access to that plant. We will still have open access. It's just a matter of price.

REP. ISSA: And if that's the case, then would you accept that Tauzin-Dingell would have an enactment date of 1996 or 1999, some date that would be prior to court decisions?

MS. GREENE: I think what Tauzin-Dingell has, what it attempts to do is to draw a line between a plant that was subject to unbundling by regulators prior to 1999 and then plant that was subject to unbundling by regulators post-1999. So I think the Act already tries to strike the compromise that your question is implying.

REP. ISSA: Tom, did you have a different answer?

MR. TAUKE: No. I think that is essentially the correct answer, but there really is only one small area that the Act changes in the local marketplace. And that is, line sharing over loops that contain fiber. The loops that are from the central office to the home, and it's only those that have fiber where line-sharing would be restricted.

REP. ISSA: Thank you. I'll reclaim what little time is left to just see if I can summarize this. If I understand correctly, what Tauzin-Dingell really wants to say is that the next level of technology, something that existed prior to 1996 but was not rolled out, when it's rolled out will take the deregulation of 1996 and undo it because we will then be rolling out over fiber rather than twisted pair and have the potential for higher speeds. And if that's correct, then aren't you asking it become a reregulated monopoly?

REP. SENSENBRENNER: The gentleman's time is expired.

REP. ISSA: Thank you, Mr. Chairman.

REP. SENSENBRENNER: The gentleman from Virginia, Mr. Scott.

REP. ROBERT C. SCOTT (D-VA): Thank you, Mr. Chairman.

Mr. Glassman, our summary says, and I think you've referred to this, that the HR-1542 would eliminate the 1996 Act's requirements that the Bell companies share their phone networks through unbundled network elements and resale with their competitors. The bill does this by rolling back regulations relating to unbundled access that the FCC issued after January 1, '99.

From a practical impact -- and maybe Mr. McLeod might want to answer this too -- exactly how does that disadvantage competition? From a practical perspective what does it do??

MR. GLASSMAN: I will defer to Mr. McLeod if he'd like to talk about the technical aspects of it, but the point is that what we will find is basically the incentives for the Bells to cooperate in opening their networks will vanish -- will vanish as a result of 1542.

REP. SCOTT: And Mr. McLeod, you indicated that you only had 8 percent. How would that make your ability to get into the market better or worse from a competitive point of view?

MR. MCLEOD: We don't have 8 percent. The combination of all long distance companies, all CLECs, after five years of competing have now according to the FCC captured 5 percent share of the local market. The Act envisioned that competitive companies would have access to the network and looking forward into advances in the network through the TELRIC pricing that was put forward. It did envision fiber. In fact, there was a great deal of fiber in the Bell networks in 1996.

REP. SCOTT: Well, if the bill passes, what will that do to your ability to get into the market? From a practical point of view, how will it stop you from getting in the market?

MR. MCLEOD: It restricts us from using the local loop in certain ways in certain times.

REP. SCOTT: Like what?

MR. MCLEOD: When a line is a combination of fiber and copper, there's restriction on our access to that loop. And in reality --

REP. SCOTT: Are there homes you can't get into if this were to pass?

MR. MCLEOD: Yes, there are.

REP. SCOTT: And how would they keep you out of the home?

MR. MCLEOD: Because the network becomes over time a hybrid -- which it is today -- a hybrid fiber/copper network. We are having a hard time getting access today to the network where we are supposedly supposed to have total access. And now we're injecting some new technology. This is not new technology. We've had DSL around and we have had fiber around for a long period of time.

REP. SCOTT: Let me ask the question another way. If I called your firm and said, I wanted your firm to service my house, how would the passage of this bill prevent you from serving my house?

MR. MCLEOD: It may or it may not depending on the plant serving your house. We would do a qualification of the line service to your house to determine whether or not facilities would be made available from the telephone company to us to service the house -- unless we did a direct build to your house.

REP. SCOTT: (Pause.) Mr. Tauke.

MR. TAUKE: Mr. Scott, the fact of life is that if this legislation passes, every local loop, whether it contains fiber in it or it does not contain fiber in it, must be resold on an unbundled network element basis to any competitor. Secondly, every competitor can purchase any service that we offer over that local loop on a wholesale basis for resale. So there are two ways the competitor can get to every home in America. The only thing this bill does is say, one methodology that is currently available -- and used very sparingly parenthetically by competitives -- the line-sharing methodology where you split the copper in two and you have one carrier offer the voice service over the copper and a second carrier offer DSL service over the copper, that would not be required when there's fiber.

Why wouldn't it be required? Because we don't know how to do it. And so if you don't lift that requirement on fiber in the local loop, then you cannot deploy fiber in the local loop, and that means a diminishment in the availability of high-speed data services.

REP. SCOTT: Thank you, Mr. Chairman.

REP. SENSENBRENNER: The gentleman's time has expired. The gentleman from Florida, Mr. Keller.

REP. RIC KELLER (R-FL): Thank you, Mr. Chairman. My primary concern is to date, and in fact my sole concern frankly, is to try to get to the bottom of what is going to be best for consumers here. Now, the long distance companies say that if that's the sole criteria -- at least it is for me -- then we should vote no on a Tauzin- Dingell. And they say that as evidence, look at what happened since AT&T broke up? The long distance rates went down, and the local rates continue to go up.

The same question, the local Bell companies say if that's the criteria, best for consumers, then we should vote yes because they are in a far better position to deploy broadband particularly to the rural areas.

I want to give Mr. McLeod and Ms. Greene a crack at that issue. Mr. McLeod, take a minute or two and just explain to me in terms of the bottom line why voting no on Tauzin-Dingell is best for consumers.

MR. MCLEOD: Voting no means voting no to in effect allowing the Bell companies into interlata services before they open up their local network. The '96 Act requires that they open their network, the 271 checklist, and once that's done the Bells are free to provide any kind of services they choose to. Now that's the aim of the Act.

We're five years into it, and we have about 10 percent compliance, about 5 states out of 50. So anything that undercuts the '96 Act like allowing a major provision, interlata services, to be opened is lessening the impact of the '96 Act.

Second, there are restrictions to our ability to use the local network in the Tauzin Bill. There are restrictions placed on the speeds with which we can access these networks. And so there are two places where we have restraint to competition which means less choice for consumers.

REP. KELLER: Ms. Greene?

MS. GREENE: Well, I would actually agree with the last statement that he just made in that what's in the best interest of consumers is the maximum possible competitive choices.

What we're talking about in a broadband network is a technology or a service that's delivered by four different technologies -- cable which has a 70 percent market share, satellite, wireless, and then landline telephone companies. We currently have about a 25 to 30 percent market share, and if you're going to have robust and meaningful competition for cable and wireless broadband, you need to allow us into that market with clear signals that if we invest in that market we'll be able to recapture our investment.

Just one point that I'd like to address though. You said in your opening statement that the inner exchange carriers talk constantly about residential rates going up and long distance rates going down. In fact, residential rates for basic service have been frozen for well over a decade, and there has been no increase in that price. Part of why I went through those numbers at the beginning was to show the distortion that we currently have in the regulatory pricing which is also a disincentive to consumers.

REP. KELLER: Thank you. Mr. Glassman, what's your opinion about the impact to consumers that this bill would have?

MR. GLASSMAN: I think that the best way to serve consumers always is through robust competition. Competition drives down prices and increases quality. What this bill does is, it limits competition. We already have that problem. The CLECs which started off with such high hopes in 1996 as a result of this act, 300 of them starting, are now on the ropes. Why? Because the Telecom Act basically has not been enforced. There's been foot-dragging, there have been lawsuits. And so these companies are going out of business.

This bill, the Tauzin-Dingell Bill, removes the only incentive that the Bells have to open up and to allow the CLECs connection to the last mile that allows them to live. They're going to die. You're not going to have any competition. And without competition, basically consumers are left with no choice except perhaps the choices that this Congress would mandate on the Bells telling them you have to deploy by this time, you have to do this, you have to do that. That's basically the way we ran telecommunications prior to 1984. And I don't think we want to go back to that date.

So what we need is to promote competition, and that is not what the Tauzin-Dingell Bill does.

REP. KELLER: I yield back, Mr. Chairman.

REP. SENSENBRENNER: The gentleman's time has expired. The gentlewoman from Wisconsin, Ms. Baldwin.

REP. TAMMY BALDWIN (D-WI): Thank you, Mr. Chairman.

We were reminded by our chairman earlier that our special role as a member of this committee is to look at the particular aspects of this bill that narrow the purview of the attorney general under Section 271 of the Communications Act of 1934. But each of us also come to this committee with another role which is as members of Congress representing our specific districts. And like Mr. Keller who questioned the witnesses just a moment ago, that's a role that I'm very clear on in my case. I represent the Second Congressional District of Wisconsin, a district that is approximately one-third urban, one-third suburban, and one-third rural.

And last year I had a chance to meet with an array of constituents from Dodgeville, Wisconsin. Dodgeville, Wisconsin is in Iowa County, a county of about 23,000 constituents. And Dodgeville is the biggest city in that county. Its sort of anchor business is Lands End Corporation. I hope everybody in this room has heard of it -- an employer year-round of about 3,000 or 4,000 individuals and seasonally many more, many of whom are members of farm families trying to bring in extra income in the struggling economy.

But also at this meeting in Dodgeville, aside from the CEO of Lands End where a public health nurse, a librarian at the Dodgeville library, the owner of a lumber store, the head of the Dodgeville Chamber of Commerce, a farmer by the name of Michael Gingrich who is a dairy farmer -- he buys grain over the Internet and also was about to get involved in a venture to develop a specialty French cheese that he wanted to market over the Internet. And an individual was also there from the community of Hollandale, a much smaller community of about 200 population. He reminded me that they were the last to get electricity in their county, the last to get phone service, and they certainly predict that they'll be the last to get high-speed Internet. They don't know what ILECs, CLECs, RBOCs are or anything of the sort. But they want to know when they are going to be truly participants in the high-speed Internet arena.

And that's what I want to know.

And like Mr. Keller, I would like to see us thinking about how we set a national policy on deployment of broadband access and what sort of legislation we need to support to get there.

I would ask each of you on that issue not talking about competition in local phone service or competition in other arenas but in competition for broadband service to these individuals -- how would in each of you in the time remaining please briefly say how would passage or defeat of HR-1542 help or harm in this situation?

And specifically who and when -- who do you think is going to provide broadband access to Mr. Gingrich or to the librarian or to the public health nurse, and when?

Go ahead.

MR. TAUKE: Congresswoman, first, the right model to look at from a consumer standpoint is what happened in wireless. And I encourage you to read my written testimony because the wireless market of 10 years ago is very much like the broadband market of today. Lifting the restrictions allowed for an explosion in the wireless marketplace and a tremendous increase in the services available to consumers. I grew up in Dubuque, so I know Dodgeville well, and Dodgeville is an area that will be served with this legislation because, A, the regional network that wasn't present can cause Lands End to move some of its facilities to a larger city in Wisconsin would be put in by the local/regional Bell operating company presumably, and secondly the Rush Amendment ensures that there will be build-out of local broadband facilities.

REP. BALDWIN: Mr. McLeod.

MR. MCLEOD: Again, this bill is really targeting the Bell companies specifically, so to the markets where the Bell comeuppance are being served there's nothing to restrict Bell companies from providing high-speed services in any of the markets today. They can do that, and they are doing that, and they're growing DSL services faster than anybody else in the marketplace.

So as far as this bill specifically causing a stimulation in DSL services in rural cities, if they are presently serving rural cities the Bell companies can service those markets with DSL. There is nothing stopping them from doing that. There is nothing stopping them from putting fiber in, and in fact they are aggressively putting fiber in.

The bottom line though is, that we need to create an environment where other people can get access to those local lines in these Bell markets so that competitors -- DLECs, CLECs, IXCs -- can come in and offer data services on those lines as well, invest in those lines and provide choice.

REP. SENSENBRENNER: The gentlewoman's time has expired. The gentleman from Utah, Mr. Cannon.

REP. CHRISTOPHER CANNON (R-UT): Thank you, Mr. Chairman. I'd like to ask unanimous consent to submit for the record an article by Mr. Glassman that was printed in the Washington Times.

REP. SENSENBRENNER: Without objection.

REP. CANNON: Also a chart showing the difference in increase and decrease in prices for local and long distance service since the breakup of AT&T.

REP. SENSENBRENNER: Also without objection.

REP. CANNON: Also various letters from local or state public utilities commissions to various congressmen.

REP. SENSENBRENNER: Without objection.

REP. CANNON: Thank you.

Mr. McLeod, if I could ask you a particular question, I was talking with some young entrepreneurs who have a high-tech company that depend on Internet access, and you are their service provider. I raise it because they need consistent, high-speed access and have had a terrible time with it. In addition to that, they've been double- billed by your company and the local RBOC. The erratic service after much time and attention turns out to be a defective switch at the RBOC site of things. My understanding, they don't calla the numbers exactly, but they either wrote off $ 5,000 of an $ 8,000 bill or maybe they wrote off the whole -- that is, your company wrote off the whole $ 8,000 bill because their service was not acceptable during that period of time.

Is this typical of your experience with RBOCs around the country where you operate?

MR. MCLEOD: We would find error rates in providing services in the 15, 20, 25, 30 percent range in filling orders, okay? So if there is an error in filling an order as we're proposing here, then we must --

REP. CANNON: This was over like a six or eight-month period of time. So these people had problems for six or eight months.

MR. MCLEOD: Yes. And those are the kinds of problems that we will spend thousands of dollars trying to rectify. So an error that comes through a Bell facility covered in their payments by us, while the Bell companies are making money on our payments to them, we're spending thousands of dollars trying to make good and hold on to a customer like that.

REP. CANNON: And then writing off the billing that you would otherwise receive.

MR. MCLEOD: And writing off the billing because we don't really have equal access to the network. The Bell companies provide us one quality of service, and they provide their own customers a different quality of service.

REP. CANNON: Mr. Glassman, could I ask you? It seems to me that the real problem here is incentives, that if you have incentive to -- if quality pays for itself then you'll want to have quality if you're an RBOC except where it relates to your competitors. Do you think this is a problem?

MR. GLASSMAN: Yeah. I think it's a massive problem. Essentially the Telecommunications Act of 1996 which I think is a good framework for the kind of broadband dissemination we need had some flaws, and one of the flaws was, it really didn't have any teeth. Instead, it simply offered an incentive to the Bells, "if you do this you can get into long distance." But they also had incentives on the other side to cause problems for people like Mr. McLeod's business. If they can cause problems for a long, long time as they've been doing, then eventually these companies, the ones that are not as financially stable as Mr. McLeod's, go out of business.

And now to compound things, they've asked for this other bill which lets them in immediately into long distance.

REP. CANNON: Let me shift gears if you don't mind, Mr. Glassman, and I'll ask you another question. I was talking with an executive from the industry about the value of these companies -- you indicated that their stock market evaluation has plummeted -- and about who would be buying those companies and why. And his answer is, nobody's going to buy these companies even at their highly depressed prices as long as you've got the Tauzin and Dingell Bill hanging over the head of the industry because they could be valueless.

MR. GLASSMAN: Absolutely. These companies still have a market cap, the way we define the companies anyway, of about $ 40 billion today -- down from $ 200 billion. A big decline.

But there are still assets there. There's still value there. And that value is rapidly diminishing as a result of this bill. If this bill passes, the value is going to be close to zero. Think about it. If you're an investor, a lender or somebody who wants to commit equity to a CLEC, how could you -- you'd have to be out of your mind to do that today with this bill hanging over the industry. You'd be nuts.

REP. CANNON: That's essentially what he said.

May I just ask one final question of Ms. Greene? You pointed out that 70 percent of this industry is dominated by cable and only 30 percent by DSL, the RBOCs. Isn't it true that only about 7 percent of the people have access to broadband today? So you're talking about 70 percent and 30 percent of only 7 percent. Isn't that right?

MS. GREENE: Only 70 percent in total have access?

REP. CANNON: Only 7 percent of people around the country have access to data broadband.

MS. GREENE: I would think that it's different in every service territory. In BellSouth service territory, we will have 70 percent of the households that we pass eligible for DSL lines by the end of next year, and so we're making a concerted effort to get DSL available and roll out technology.

REP. SENSENBRENNER: The time of the gentleman has expired.

REP. CANNON: Thank you, Mr. Chairman.

REP. SENSENBRENNER: The gentleman from Massachusetts, Mr. Delahunt.

REP. BILL DELAHUNT (D-MA): Thank you, Mr. Chairman, and I yield for as much time as he may need to the ranking member, Mr. Conyers.

REP. CONYERS: I thank you, Mr. Delahunt. I just want to clear up an important question that Congressman Scott raised with our former colleague in which it was not made perfectly clear that under this bill before us the Section 271 we would be providing voice telephone service under Tauzin-Dingell but not data service. Mr. Tauke said that, yes, to both. And this is the huge --

Here's the 64-thousand dollar question that just got slipped through here. It does not include data, and that's where the market's going. Right?

Thank you for yielding.

REP. DELAHUNT: I think maybe Mr. Tauke would like to respond, but I don't think I have the time to allow him to do that.

Mr. Tauke, you indicated earlier that with the PUCs their inclination to oppose Tauzin-Dingell was predicated in your opinion on loss of jurisdiction. Now you've heard other colleagues here speak to the issue of the consumer. Now, Consumer Federation of America, Consumer Union -- these are legitimate consumer organizations, and they're highly regarded by members on both sides -- are both opposed to Tauzin-Dingell. Is their analysis in terms of the impact on the consumer inaccurate? How do you account for their opposition in its impact to the consumer?

MR. TAUKE: Yes. In simple terms I think their analysis is wrong. There has been a lot of faulty analysis relating to this bill, and frankly I think there has been quite a bit of that today. There are other groups such as the NAACP, the League of United Latin American Citizens, Lions for Public Technology --

REP. DELAHUNT: Thank you. You've answered my question. I appreciate that. But in terms of the consumer interest, these are groups that have for a long period of time existed and analyzed various proposals before Congress regarding the impact on consumers.

MR. TAUKE: They opposed the '96 Act too. They have traditionally opposed any change in telephony regulation.

REP. DELAHUNT: Right. Again, and I would go back just to pursue the point by Mr. Cannon.

I think the point that Mr. Glassman is making -- and I'll presume that his data is accurate and maybe you can expand on that -- but while Tauzin-Dingell is kicking around here in Congress it is having an impact in terms of capital access. And uncertainty we know the financial markets do not embrace and in fact run away from.

Mr. McLeod, you as someone that's in the business, do you have any anecdotal information or in your own experience when you go to a bank are they saying to you, gee, Mr. McLeod, we'd like to help but what is Congress going to do in terms of Tauzin-Dingell? Are you aware in your own experience, are any of your competitors finding access to capital substantially impaired?

MR. MCLEOD: Yeah, I think the handwriting's pretty simple to read. I don't think I have to hunt very far for examples of this. When you see the industry and the capital being shut off, you know that the markets have weighed in and said, look it, we set up the rules in 1996. This bill is --

REP. DELAHUNT: Mr. McLeod, my question is, have you run into that experience or are you aware of anybody that has gone down seeking capital and it just isn't working?

MR. MCLEOD: Yes. I have spoken to people on Wall Street will specifically talk to a bill like 1542 and say, if we go in this direction are we just remonopolizing the marketplace? So that's about --

REP. DELAHUNT: Mr. Glassman.

MR. GLASSMAN: We've had three dozen CLECs in Chapter 11 and lots of them are ready to go in. Let me just quote Reed Hunt, former FCC chairman: "Investors no longer know the direction of policy. They no longer know what to bet on, so they are taking money off the table."

REP. DELAHUNT: Thank you.

REP. SENSENBRENNER: The gentleman's time has expired. The gentleman from Alabama, Mr. Bachus.

REP. SPENCER BACHUS (R-AL): I thank the chairman.

One of the reasons we are here today is to talk about the antitrust provisions of this and the, what is it called, Goldwasser case? Is that how you pronounce it? Now it's my understanding today -- not understanding -- when you want to pass a rate or a tariff you go to the regulatory agency and you get that approved. Does everybody on the panel agree with that?

MR. TAUKE: yes.

REP. BACHUS: You file for it, you get it approved? And once it's approved, then you don't have to defend it against the tariff, you don't have to defend that against an antitrust action, a collateral attack by a customer. And that's true, isn't it?

MR. TAUKE: Yes.

MR. MCLEOD: Well, the rates for services are still being questioned all the way to the Supreme Court today.

REP. BACHUS: Well, they're being questioned, but now there's a -- we've had a doctrine, and I graduated, I was an outstanding senior at a pretty good law school, and we were taught that if you go to a -- and I only say that because we were taught then and I think I mastered it that if you go to a rate agency and you file and you get a tariff approved then a customer can't go in and collaterally attack that. Isn't that the doctrine we've had since, what is that case? Chicago Northwestern was the defendant. Wasn't that right? Hasn't that been the law since 1922?

MR. TAUKE: That's what I understand the law to be.

REP. BACHUS: And there was affirmed in AT&T case just recently, wasn't it? 1998 by the Supreme Court?

Now does anybody disagree with that doctrine, that if you go to an agency and you get a rate or a tariff approved that you don't have to let every customer go into court and collaterally attack it? Don't we all agree on that?

MR. MCLEOD: Mr. Bachus, it's not that I don't agree with it. I just means that I'm not a lawyer, and I just don't know the answer.

REP. BACHUS: You talk about companies going broke -- if that doctrine came off and you had to defend yourself against every rate attack by every customer that was disgruntled, you'd have a lot more companies going --

MR. GLASSMAN: In a monopoly-controlled environment where rates are established for a resource that is a monopoly resource --

REP. BACHUS: Right. But what I'm saying, the circuit court just affirmed that doctrine. They affirmed the doctrine in the KeeBo (ph) case?

MR. TAUKE: And it's true not just in monopoly environments. It's true in any environment including long distance marketplace or others where tariffs are filed. They aren't subject to subsequent attack by customers on an antitrust basis.

REP. BACHUS: When I went to read that case thinking it was some complicated thing that it would be hard to understand, and all the court did is affirm a doctrine that's been in existence since 1922 and it's been affirmed every so often. I mean, that's my understanding of the case. I mean, I didn't think it was -- I'll go back and --

MR. MCLEOD: Can I talk practical versus legal for a second because I'm not --

REP. BACHUS: Yeah. But I mean, it was a legal decision. It may have a practical effect. And what I'm saying, maybe the court as a practical matter needs to say that once you get a rate or a tariff approved that customers can go in and collaterally attack it is something I don't think unbowed in the industry would want. But that's the doctrine that --

MR. MCLEOD: Certainly the monopolies would not want that to occur because it is protection for the monopolies.

REP. BACHUS: If you go regulatory agency --

Well, let me ask you this. I also heard this, and let me just ask Ms. Greene because I could have sworn that our farmers have endorsed Tauzin-Dingell. Have not your farm organizations, some of them the Grangers and others, they represent rural America and the farmers. Hadn't they endorsed this bill?

MS. GREENE: I'm confident that the Grange has, but we have many consumer organizations that have endorsed this bill. And back to the question that was asked about Consumer Federation of America and Consumers Union -- they do not endorse Tauzin-Dingell, but the reason is because they want open access for cable as well. They want competitors treated similarly, which is what Tauzin-Dingell would do, but they want regulation imposed on all sides.

REP. BACHUS: Well, would we all agree that today your rural consumer, your small business, if he's not hooked up to the Internet he can't compete effectively? Do we all agree to that?

MR. GLASSMAN: Yes. And by the way, as you may or may not know, Congressman, the Bells have been selling off their rural lines. They've sold off 10 million rural lines already, and there was a Legg Mason conference where the analyst said that they want to sell off another 20 to 30 million rural lines.

REP. BACHUS: I'm just saying --

REP. SENSENBRENNER: The gentleman's time has expired. The gentleman from Virginia, Mr. Boucher.

REP. RICK BOUCHER (D-VA): Thank you very much, Mr. Chairman.

Mr. Tauke, let me get you to respond to some of the claims that have been made by opponents of the legislation with respect to the state of competition in the local exchange. And let me begin with just some numbers about the percent of lines in the local exchange that are in the hands of the CLECs. In the case of the residential market, the CLECs have something like 6 percent of the lines nationally.

But in the case of the business market, the CLECs have something on the order of 40 percent of the local exchange lines, and I think Ms. Greene said that in the city of Atlanta that number now approaches 50 percent.

The rules for obtaining access are exactly the same in the case of the residential market and the business market. And so what is there about the residential market that has caused the CLECs not to invest? Why do we have only 6 percent of those lines in the hands of CLECs; whereas, in the case of the business market it's 40 percent and upwards? And what conclusion should the members of this committee draw from those numbers about whether or not the local exchange is truly open to competition today?

Mr. Tauke.

MR. TAUKE: Well, first, Mr. Boucher, I think it's important to note that competition is developing very rapidly in some marketplaces. If you look for example at the state of New York, even if you look at just access lines, just access lines, 25.62 percent of the access lines in the state of New York are now controlled by competitors. 17.96 percent in the state of Massachusetts. 14.04 percent in the state of Pennsylvania.

So competition is developing quite rapidly in some states, particularly where there are major metropolitan areas.

Secondly, if you look at a state like New Jersey and you have the barbershop on the first floor and the apartment on the second floor, the barbershop for dial tone pays $ 50 bucks a month. The residence that's on the second floor pays $ 8.19 a month. Now if you are a competitor, where are you going to go to sell your services? You're going to go to the barbershop, not to the apartment upstairs.

This is what Ms. Greene was trying to explain earlier in her remarks. They go where the money is. That's why we develop competition -- first high speed access markets to large businesses. It develops next in the mid and small-sized businesses, and it develops last in the residential marketplace except in those states where they have begun to change the rate structure.

REP. BOUCHER: And the conclusion that we should draw as members of this committee about the state of competition at the local exchange is what? What would you say?

MR. TAUKE: Well, as the FCC said in its report that was just recently issued, and I encourage all of you to read it, competition is developing very well in the local market, A. B, it's going to the business market before it goes to the residential market. And, C, it develops more rapidly in states where long distance entry has been granted. Why? Because then the long distance companies come in and compete in the local marketplace.

Right today the long distance carriers don't come in in a major way in states until they see the Bell company getting into the long distance market, and then they go into the local market in order to preserve their customer base.

REP. BOUCHER: The second claim I'd like to get you to respond to is, is this. The opponents of the legislation say that passage of the Tauzin-Dingell Bill would undermine the Section 271 process that currently governs the entry of Bell operating companies into the interlata long distance market. Let's suppose this bill is passed and immediate entry for data services is allowed. What remaining incentives would there be for the Bell operating companies to take the steps necessary to open their local exchange to competition or retain the openness that now exists in the event that the bill passes?

And I would ask for the answer in two particulars. First of all, is the size of the voice-based long distance market adequate to provide that incentive? And secondly, are there any provisions in existing law, perhaps in Section 251 of the 1996 Act, that would require the Bell operating companies to have an open local exchange, incentives aside?

Mr. Tauke?

MR. TAUKE: On the first question, the size of the voice market, long distance voice market is over $ 100 billion, and the margins are high. The size of the data long distance market is about $ 6 billion -- no estimate that I've seen higher than $ 10 billion. So the comparison of the two markets shows the incentive is in the voice market. And the margin in the data market is virtually nonexistent. In answer to your --

REP. SENSENBRENNER: The gentleman's time has expired.

The gentleman from North Carolina, Mr. Coble.

REP. HOWARD COBLE (R-NC): Thank you, Mr. Chairman. Good to have you all with us.

From the comments made during the last hearing on this subject, there appeared to be general agreement that the Bell companies would receive 271 approval across the country and therefore under the provision of the 1996 Telecom Act be granted entry into the long distance market and competitors will have access to their local loop.

I'm furthermore advised that the FCC is in the process of reviewing line sharing requirements and looking for an efficient and fair way to apply such requirements to fiber lines. Now if the Bells are going to be able to enter long distance market within the next year, give or take four or five weeks, and the FCC is reviewing line sharing requirements, why is Tauzin-Dingell necessary? From anyone. Ms. Greene?

MS. GREENE: Well, we will still not have a clear telecommunications policy even if the FCC would decide that line sharing wouldn't be required. The FCC has recently decided that they should extend unbundling and regulation to packet switching, and each generation of technology that comes forward there is still the regulatory threat that the FCC will reach out and break that apart into piece-parts and then price at a deeply discounted rate and make it available to competitors.

Cable doesn't enjoy that kind of regulation. Satellite doesn't. And neither does wireless.

REP. COBLE: Anybody else want to weigh in on this?

MR. GLASSMAN: Yeah, I would like to, Congressman. You've asked a very important question. Right now the Bells are perfectly capable of getting into DSL. They're doing it. SBC's Project Pronto, $ 6 billion. BellSouth is doing it. It isn't necessary to pass this legislation.

However, with the legislation up here hanging over the heads of CLECs, as it has been for over a year, their market caps are declining, uncertainty grows, capital dries up. So from a strategic point of view, it makes a lot of sense for the RBOCs to have this bill hanging around. From a practical point of view, no.

REP. COBLE: I did not mean to imply that it is not necessary, but as the old farmer said, I wanted somebody to 'splain to me why it was necessary. The gentleman from Ohio.

MR. TAUKE: Well, first, I want to point out I vigorously disagree with Mr. Glassman's analysis of the market which we could get into at another point. But in response to your question, I think that it is important to understand that timing is of the essence here because the fact of life is, is that today Americans are seeking and want broadband services, and every month, quarter, year delay takes time.

So one issue is just timing. And the timing relating to our long distance entry and the timing relating to the deployment of broadband services in the local loop and for the FCC to change its rules is very important. And that takes time.

The second big thing is that --

REP. COBLE: Make it quick, Tom, because I've got to beat that red light.

MR. TAUKE: Okay. I'll speak fast. The FCC has tried. They tried to relieve us from the 251 rules. These are some of the requirements we're talking about today -- that if you put this in a separate affiliate, your high-speed data services in a separate affiliate, these rules shouldn't apply. In part they did that because they don't think that it makes sense for telephony rules to apply to broadband.

The court overruled them. So the fact of life is that the FCC sees the need to do it, but they aren't sure they have the authority to do it. That's why action is needed by --

REP. COBLE: Mr. McLeod, quickly.

MR. MCLEOD: You're absolutely right. Mr. Tauke has said time is of the essence. We have waited five years for compliance to 271. The competitive industry has waited five years! And if in fact they're ready to open up their network in a year, I would say the Bell companies could certainly wait another year and comply with 271 and be able to provide all services --

REP. COBLE: Let me ask Ms. Greene a follow-up question. Ms. Greene, what is your company's business plan if HR-1542 were to become law compared to the fact if it did not become law?

MS. GREENE: Our business plan if 1542 was law would be not characterized with the degree of caution that we have today. Today as we look where we're going to place our DSL investment, we have great concern that the same pattern that has happened to us with the investment that we've had in the traditional network, that that same pattern will occur -- where we have subsidized rates and we are counting on an incentive and then the regulators will come in and force us to sell that network at a deeply discounted rate. We would have more confidence, we'd be a bolder investor.

REP. COBLE: Can competitors compete with Bell monopoly --

REP. SENSENBRENNER: The gentleman's time has expired.

REP. COBLE: Thank you, sir.

REP. CANNON: Mr. Chairman, may I ask unanimous consent that members be allowed to submit written questions to the witnesses?

REP. SENSENBRENNER: Without objection. And also without objection and at the request of Mr. Conyers I would like to insert into the record a letter dated June 4 from the Association for Local Telecommunications Services addressed to me in support of the Cannon- Conyers Bill and in opposition to the Tauzin-Dingell Bill.

The gentlewoman from Texas, Ms. Jackson-Lee.

REP. SHEILA JACKSON-LEE (D-TX): Thank you very much, Mr. Chairman. I'd be delighted to yield to the ranking member.

REP. CONYERS: Thank you, Ms. Jackson-Lee.

Tom, this is isn't our best state, but let me just point out to you that NAACP does not support the Tauzin-Dingell Bill. Do you know that?

MR. TAUKE: Well, I think I disagree with you, Mr. Conyers.

REP. CONYERS: Well, check with Hillary Shelton, the executive secretary, executive director of NAACP because I just called him.

MR. TAUKE: Well, they're on the Hill lobbying in favor of the bill. So --

REP. CONYERS: Okay. I'll go get him then. If I bring him here and he'll -- he won't be able to be a witness, but if I can bring him in the room and have him hold up a sign, what would that do for you?

REP. SENSENBRENNER: The gentleman from Michigan knows that demonstrations are not allowed.

(Laughter.)

REP. CONYERS: Could we slip him a note, Mr. Chairman?

Thank you. I thank the gentlelady.

REP. JACKSON-LEE: Thank you very much, thank the ranking member.

Let me use the time I have to try to bring us back to where we started, not at the turn at the century but 1996 and Telecommunications Act. And to Mr. Tauke I'd like to ask and as our time flows, why that does not fit for what you are trying to do today.

And I'm going to go right to you, your next-door neighbor Mr. McLeod, for why you feel we need legislative action to fix where we are today. Mr. Tauke, why not the 1996 bill? Why is that not enough, Telecommunications?

MR. TAUKE: The 1996 Act did not address broadband policy. Ira Magaziner some of you may recall was at the White House at that time and handled the White House position on the Telecommunications Act -- worked very hard to get a Title VII in the Act which some of you may recall to establish a broadband policy. And it would have said that services above a certain speed would have been treated as broadband policy or as broadband and there would have been a separate policy articulated. Because that was not done in the 1996 Act, there has been a lot of confusion as to what rules do apply. As I indicated in my earlier testimony, three circuit courts have addressed this issue and haven't even been able to decide if broadband services are telecommunications services or in some cases if they're cable services, or which piece of the Act applies to them.

The FCC tried to deregulate many of these services as part of the merger -- for example in our case of Bell Atlantic and GTE -- as long as we placed them in a separate subsidiary, which we subsequently did. But the court overruled that effort by the FCC.

REP. JACKSON-LEE: You do not think yes or no that the 1996 Act precludes Tauzin-Dingell? Precludes.

MR. TAUKE: No, it does not preclude Tauzin-Dingell.

REP. JACKSON-LEE: Mr. McLeod, why can we not act in the framework of the 1996 Telecommunications Act as it relates to CLECs?

MR. MCLEOD: I think the framework for the '96 Act is fine. However, in the process of implementing that we need to buy services, if you will, from the telephone companies and receive equal access to those services. To get equal access means that the telephone companies need to provide that service in the same way they're providing it directly to their own retail operations.

If anyone believes that there isn't a conflict of interest there that is so huge it's insurmountable, then I'd like it explained to me -- how we would get equal access to their retail operation.

So to solve that, we need to be able to functionally separate that provisioning of services so that we get the same service as their own retail operation. You can functionally separate them or you can do as we did in the long distance industry -- and that is, we can break them apart structurally.

Now those are the two solutions to that.

The second thing is that as we move forward here the Bell companies have to have some kind of punishment when they don't comply with the Act. Some kind of punishment.

Let me read a short article here from the Telecom Report where the FCC --

REP. JACKSON-LEE: Mr. McLeod, would you be kind enough maybe to submit it into the record or summarize it because my time is moving, and I've got some additional questions.

MR. MCLEOD: I'll summarize it very quickly.

REP. JACKSON-LEE: If you would.

MR. MCLEOD: FCC was fined $ 88,000 for not complying with a merger act when they bought Ameritech. This is a $ 100 billion company. Let's not go after elephants with BB-guns. You can't fight -- an $ 88,000 fine?

REP. SENSENBRENNER: The gentlewoman's time has expired. The gentleman from Virginia, Mr. Goodlatte.

REP. ROBERT GOODLATTE (R-VA): Thank you, Mr. Chairman. I appreciate your holding this second hearing on this important issue. I have a statement that I would ask to be inserted in the record.

REP. GOODLATTE: Thank you, Mr. Chairman. Mr. Chairman, in addition I have a lengthy letter addressed to you by Herbert Hovenkamf (ph) who is the professor of law at the University of Iowa who is the author of the 18-volume Antitrust Law, one of the major treatises in this area, that supports the Goldwasser decision, says it's a correct decision, and rather severely criticizes the Conyers-Cannon legislation that has been introduced to overturn that decision. I'd ask that that be made a part of the record.

REP. SENSENBRENNER: Well, if the gentleman will yield, this is not all 18 volumes, is it?

REP. GOODLATTE: No. It's only five pages, Mr. Chairman.

REP. SENSENBRENNER: Without objection. It's eminently printable.

REP. GOODLATTE: Thank you, Mr. Chairman. Thirdly, I would ask to have made a part of the record a precursor group independent research statement by Scott Cleland which states a number of reasons why the CLEC industry is not doing well quite contrary to the observations made by Mr. Glassman here today.

REP. SENSENBRENNER: Also without objection.

REP. GOODLATTE: Thank you.

REP. SENSENBRENNER: Anything else?

REP. GOODLATTE: That will do it for now, Mr. Chairman. Thank you.

First let me say to Mr. McLeod, Mr. Glassman, your definition of "deregulation," and Mr. Glassman I've had the opportunity to read your piece in the Washington Times while I've been sitting here waiting, "For Whom the Bells Still Toll," your definition of "deregulation" is completely the opposite of mine. To me, "deregulation" means cutting companies loose and allowing them to get into a market and compete and provide services. That's what we did in the Telecommunication Reform Act for the CLECs. In fact, there are 150 CLECs in the market today, and they have now captured 35 to 40 percent of the business local telephone market.

Now they have not captured anywhere near that for the residential market, and that's because they haven't chosen for the most part to go after the residential market. Why? Because 40 percent of that market is subsidized by the telephone company. So if you're subsidizing the market, if you're paying more to provide the service than you're getting in return, you're not likely to go into that market

And so as a result, I think that the Telecommunications Reform Act is working very well in that regard.

Now as to the capitalization of those companies, it is true that along with a whole lot of other Internet-related companies, the value of that capitalization has declined dramatically in the last year. A lot of those companies have absolutely nothing to do with providing local telephone service, and they declined as well. One of the reasons why investors are cautious right now is that that whole downturn has taken place.

The second reason is that with 150 companies in the market, they're not going to succeed. Probably six out of seven, according to John Mallone who testified at the last hearing, are going to fail. There probably is room in this market for 20 to 25 CLECs competing on a national basis.

So, yes, a lot of companies have filed bankruptcy. That's because a lot of them have bad business plans. That's because they're competing with each other as well as competing with the telephone companies, and that's going to result in a huge market shakeout which is taking place right now. I hope Mr. McLeod's company is one of those that succeeds. But the fact of the matter is, most of them are not going to succeed, and that's what this is all about.

Now let me ask you, Mr. Glassman, are you familiar with the testimony of Mr. Malone who testified at the previous hearing we had two weeks ago?

MR. GLASSMAN: No.

REP. GOODLATTE: He's a consultant to the CLEC industry, and he testified that there are 150 of these companies, and he expects because of the competition amongst each other and because of the bad market and because of the shakeout that's going to take place, many of them are simply going to go by the wayside. Would you dispute that?

MR. GLASSMAN: Certainly there has been a shakeout in high technology. There were 300 --

REP. GOODLATTE: Is it going to continue?

MR. GLASSMAN: There were 300 CLECs five years ago.

REP. GOODLATTE: Is it going to continue?

MR. GLASSMAN: There's half of those now, and the big ones are the ones that are going under. There's no doubt -- I'm completely aware by the way since I have written for many year a column on the stock market -- that there's been a big decline in high tech stocks over the last year and a half. But what our research shows is that the decline for CLECs is far greater than that decline, and there's a good reason for it. And soon we're going to have zero CLECs, and I don't think anybody thinks that's a good idea.

REP. GOODLATTE: Oh, I don't either. And I don't believe that's the case. I believe that CLECs will continue to be able to complete in a market and quite frankly I think that if the Bells are allowed to get into the long distance market and build out the backbone of the Internet where there is not enough competition today, that that will improve the market for CLECs because they'll have the option to do that.

REP. SENSENBRENNER: The time has expired. The gentleman from North Carolina, Mr. Watt.

REP. MELVIN WATT (D-NC): Thank you, Mr. Chairman. Let me be completely parochial first. Ms. Greene, BellSouth serves my congressional district local service. I'm told by them that within a year or less they will have done whatever is necessary under the Telecom Act to allow themselves to be in the long distance market. Is that right?

MS. GREENE: Yes, sir. If I could take just --

REP. WATT: Wait a minute. Just then on a state of North Carolina basis, if that were the case would there be a need for Tauzin-Dingell for North Carolina? If you had, if BellSouth had long distance the long distance people have local, everybody's competing on the same basis in North Carolina, would there be a need for Tauzin- Dingell in North Carolina? X out the other 49 states.

MS. GREENE: Well, I'll enjoy being completely parochial with you. Yes, sir. There would still be a need for that.

REP. WATT: Why?

MS. GREENE: And the reason is that Tauzin-Dingell has two parts to it. One of them is that it would give interlata data relief, and if we were allowed in long distance in all of our states that provision would not be as important to us.

But the second provision that it has is, it gives a clear policy signal that the other pieces of investing in a broadband network fully equipping offices, building fiber out into the network as much as possible, beginning to do fiber and copper loops and really deploying DSL vigorously, those components of the network which are new-build and which are competitive with existing services today, those services would not be regulated. That clear signal is what we need.

REP. WATT: So do I understand what you're saying is that you're looking for a signal? Or are you looking for content of a bill? I thought the signal to all private enterprise was to get in everything on an unregulated basis. You're looking for some additional signal other than that?

MS. GREENE: Sir, today, our network today can be broken up into piece-parts and sold at a discount.

We are looking for a clear policy direction that says on forward- looking technology the new Internet technology, that that will not be regulated in a way that's different from its competitors.

REP. WATT: But once everybody is competing on the same basis, local, long distance carriers -- historically long distance carriers are in local markets -- why would there need to be any signal beyond just that the market is working?

MS. GREENE: What we're talking about here is, you are talking specifically about the voice net -- what we're trying to do in North Carolina is get authority to offer long distance voice services. What the Tauzin-Dingell Bill is about is unregulating advanced services, broadband services, Internet-related services. They really are two different things.

REP. WATT: All right. I think I heard pretty clearly -- I'm going from parochialism to heresy now since I got a smidgeon of time -- your testimony about control of residential rates impacting the willingness of companies to get into residential markets would seem to me to get you to a conclusion that residential rates should be deregulated by state utilities. Am I missing something in that?

MS. GREENE: I was not giving you those numbers to make that point. I was giving you the numbers to show that money follows --

REP. WATT: How else would you ever get carriers to go into it if that does not happen?

MS. GREENE: Well, I think that's a good question. That's not the question we're here to talk about today. But the Telecom Act had four purposes. One of those, universal service.

REP. WATT: I'm here to try to get more service, and if that gets more service why wouldn't we be here to talk about that?

MS. GREENE: Well, I think that that is a question that's going to have to be addressed.

REP. SENSENBRENNER: The gentleman's time has expired.

REP. WATT: Thank you, Mr. Chairman.

REP. SENSENBRENNER: The gentlewoman from Pennsylvania, Ms. Hart.

REP. MELISSA HART (R-PA): Thank you, Mr. Chairman.

I'm interested in what this bill would do to basically prevent or I guess prevent the concerns people have about antitrust with the Bells and also I guess my question goes to Mr. Glassman as an economist which I believe you are.

MR. GLASSMAN: Well, actually --

REP. HART: You are not?

MR. GLASSMAN: I just play one on TV.

REP. HART: Okay, well, that's close enough. I'm sorry --

MR. GLASSMAN: I write about it.

REP. HART: I'm playing catch-up here.

MR. GLASSMAN: I'm not a Ph.D. economist.

REP. HART: Okay. That's okay. You don't have to be. I'm not a Ph.D. either.

MR. GLASSMAN: Good.

REP. HART: What do you think the impact on business would be if the prospect for success in an antitrust suit would become better which I guess would be a result if we do move forward with this legislation?

MR. GLASSMAN: If the prospects for an antitrust would be better for plaintiffs who are arguing against the Bells? Is that what you're saying?

REP. HART: Right, against the Bells.

MR. GLASSMAN: Well, I think it would improve business. I mean, right now under the Act and under the Goldwasser decision as I understand it the plaintiffs are in a very difficult position. I mean, there are no teeth to this Act. We are basically depending on the kindness of the Bells or the incentive this carrot allowing them to get into long distance. And now we have a bill that lets them in the long distance anyway. So you don't really have much left as far as enforcement's concerned.

REP. HART: As far as the Bells go -- and I guess either one of you could answer this one, either one of the Bells I guess, Mr. Tauke or Ms. Greene -- I was a state legislator in '96, and we were just sitting back kind of watching what was going on expecting a lot of the areas in rural Pennsylvania to get all this wonderful service, and nothing has happened. And people are sitting around back home saying to me, no, this is the only -- don't support this because this is the only hammer we have to force the Bells to do what they promised they would do. If we do pass this, tell me why you're going to go in and serve the rural areas better.

MR. TAUKE: Since Verizon serves Pennsylvania, let me attempt to answer that question. First, at the current time many rural areas of Pennsylvania are like rural areas that I referenced earlier in Virginia such as Mr. Boucher's district where there is the regional network that is needed to connect the last mile to the long-haul broadband pipes are not in place. And we are unable today to deploy those services because of restrictions contained in the Act, the interlata restrictions.

By lifting those restrictions, we would be able to deploy that kind of service.

Secondly, in rural areas we would be able to deploy more fiber into the network which is necessary in order to be able to reach customers with DSL service who are farther from the central office. In order to get DSL service you have to be within 3 miles of a central office. In many rural areas, a lot of customers are not within 3 miles of a central office. So what we do is deploy fiber out a ways, then have what we call a remote terminal, and from that remote terminal we have copper that goes to the home. This would allow us to deploy fiber and establish those remote terminals and deliver the DSL service to those customers.

In addition, this Act as it's currently written requires deployment of broadband services in all central offices that we have including those in rural Pennsylvania that you are referencing.

So I believe that because of the regional network issue, the last mile issue and because of the deployment requirements in the Act, that you could be assured that services would be delivered to your district.

REP. HART: And the only thing that I would add is, embedded in your question was that somehow Tauzin-Dingell would take away the threat that we have or the incentive that we have under the '96 Telecom Act to get into long distance. Tauzin-Dingell doesn't do anything to remove our incentives to get in the voice long distance market. It would prohibit us from being in the voice long distance market until we completed the checklist activities that are required under the '96 Act, so it doesn't change those incentives at all.

REP. SENSENBRENNER: The gentlewoman's time has expired.

The gentleman from New York, Mr. Nadler.

REP. GERALD NADLER (D-NY): Thank you, Mr. Chairman.

I've observed in some other areas that have been deregulated that there seems to be a certain path that we go through. First you have a regulated monopoly. Then you have deregulation. And then you have competition and better service and cheaper prices. Then you have mergers and acquisitions. Then you end up with a nonregulated cartel and you're back where you started except you lack the regulation, although as Mr. Glassman's comment proves true Congress may then be tempted to come in and make it a regulated cartel and you're sort of back where you started.

It seems to me that we're well on the way in telecommunications.

But let me ask the following. Mr. Tauke mentioned the figures for competition in New York, and New York supposedly has a lot of local competition. I represent the part of New York including Silicon Alley -- I must tell you that the local telephone service is disgraceful. The largest single source of complaints in my office after complaints about the Immigration/Naturalization Service is complaints against local telephone service, mostly by businesses where we have the competition, where Silicon Alley -- I represent Silicon Alley. They're screaming they can't get broadband, they can't get high-speed service. We recently moved my own district office, and even though as a congressman I could talk to appropriate people in the local telephone company, it took almost a month to get the Internet service moved. No one comments on how cheap the service has gotten.

Let me ask Mr. Glassman with whom I seldom agree but find myself in agreement on this occasion, why do you think given the fact that we have theoretically -- whatever Mr. Tauke's figures were I'm sure they're correct -- some local competition, why has it gotten so bad, much worse than when we supposedly had just the regulated system?

MR. GLASSMAN: Well, I guess even though we agree on this, I kind of disagree with kind of your overall theory that you necessarily --

REP. NADLER: I didn't say necessarily. I said it seems to go in that direction sometimes.

MR. GLASSMAN: Well, maybe it does. Okay. And I think it is going that way this time if this bill passes or even if it this bill hangs around for a long time. And may I also say one other thing, Congressman? I too live in New York as you know, and I try to run a small business in New York, and I have exactly the same problem. It's extremely difficult to get DSL service. I tried to get it from Verizon and I ended up going to RCN. Now I can't even get that. Okay.

I really don't know the answer to the question except that when you get kind of an effective monopoly in an area, normally the monopoly cuts back on service and raises prices. That's basically what they do. And why do they do it? Because they make a whole lot more money that way. And my worry is that this bill reinforces, actually extends the monopoly that the Bell companies have.

REP. NADLER: I clearly agree. I must say that I was one of I think 16 members of the House who voted against the Telecommunications Bill of '96 because of a number of reasons, one of which was that I thought it would tend to increase concentration of ownership in the media and in telecommunications. I don't have so much (possessory ?) interest in keeping the bill as it is, but it does seem to me that Tauzin-Dingell takes away the only enforcement mechanism we have on gaining some local competition which is one of the main purposes of the bill to start with.

Are you saying in effect, Mr. Glassman, that even though we have whatever that percentage of market penetration by CLECs, the control of the local Bell company of the last mile is such that effectively they make it difficult for the CLECs to compete currently and that's why we're still getting the lousy service in New York?

MR. GLASSMAN: Absolutely. Absolutely. I don't think there's any doubt about that, and you can hear from Mr. McLeod if you don't believe me.

REP. NADLER: But even where you have competition.

MR. GLASSMAN: In New York. In fact I kind of thought it was impolitic for Mr. Tauke to raise New York as an example since I know about it --

REP. NADLER: Certainly somebody representing southern Manhattan, yes.

Mr. McLeod?

MR. MCLEOD: Let me say that I disagree a little bit with your model as well because I do believe we created a very competitive market in the long distance business -- viable competitors in long distance, and they all had equal access to the last mile connection. That's what we're missing right now is equal access --

REP. NADLER: And the difference between --

REP. SENSENBRENNER: The gentleman's time has expired.

REP. NADLER: 15 seconds, sir?

REP. SENSENBRENNER: The gentleman from New York, Mr. Weiner.

REP. NADLER: Mr. Chairman, could I have 15 seconds?

REP. SENSENBRENNER: I haven't extended anybody else's time.

REP. NADLER: Can I have 15 seconds?

REP. SENSENBRENNER: I'd like to recognize the gentleman from New York. If you can ask him to yield some of his time if he wants to.

REP. NADLER: I wouldn't do that.

REP. SENSENBRENNER: Mr. Weiner.

REP. ANTHONY WEINER (D-NY): Thank you, Mr. Chairman. And I thank the panel. I'm particularly gratified to see former Congressman Tauke here. I always wondered whether having "Congressman" on your resume means you can never get a real job. And I'm glad to see someone landed on their feet.

Actually, I want to -- you know, I think Verizon is an example here of what is the good and the bad in the present law. I think it's fair to say that Verizon and other Bells made a crucial mistake in not rolling out DSL more aggressively faster, that one of the reasons you're behind cable is because you didn't for that period of time, however long it was, DSL -- you know, 56K was as high as you were willing to go for most residences. Cable companies, on the other hand, said, you know what? We have these tubes going in and we're going to dig up all the streets of New York and other places, and we're going to try to get delivery.

But you're also the best in terms of the way you've complied with the 13 points in places like New York and four other states. You've gone through an arduous process. You've done it well enough that now consumer groups and unions and everyone else has rallied around the idea of giving you a sign-off to expand your service. And in many ways you're the argument for keeping the present law that you don't want to reward a company that says, "All right, I'm not going out invest in high-speed broadband. Oh, wait a minute; now I want to. Let me get government to help push me." You seem to be or Verizon seems to be the case study for leaving things alone.

Before you answer, I also -- I'm puzzled about all of this talk about servicing rural areas. I will eat this desk if cable or DSL is servicing rural areas in five years or 10 years. There's a reason there's satellite dishes all across the landscape. It's going to be satellite of some form or some technology that we're not even thinking about that's going to service those areas. It's funny how 3 or 5 or 6 percent of your customer base is now driving 90 percent of this debate.

So I guess my question for you, Congressman, is, why is it looking at your experience in New York and my experience as a consumer where I now have Verizon DSL which I got very quickly without any problems but it stinks, so now I'm going to try out Cablevision who just knocked on my door and said, we're ready to provide you cable service. I'm going to try that too. Isn't my experience an experience in New York and Verizon's experience exactly why we should preserve the present law?

MR. TAUKE: First Congressman, I think I would be remiss if I didn't ask that Mr. Nadler and you both raise your service questions. I have answers to what is going on in New York relating to those issues which is unique to your area of Manhattan, and it has to do with the build-out of facilities.

But specifically to your question relating --

REP. WEINER: By the way, Brooklyn is the rural area to Jerry Nadler, by the way.

MR. TAUKE: As we've talked about, there are two pieces to the Tauzin Bill, and the piece that is most important to the state of New York is the piece relating to the last mile. And when it comes to what we need to do in Manhattan and what we need to do in many other areas is deploy more fiber into the local loop. Why is it that we can't deploy fiber today or are inhibited from deploying more fiber? The reason we're inhibited from deploying more fiber is that in order to deploy more fiber we have to figure out a way in which to do line sharing over that fiber in order to meet the requirements of regulators as they currently stand and which the FCC at one point tried to exempt us from but couldn't.

When we have to do line-sharing over the local loop --

REP. WEINER: Forgive me. I have a very limited time. You're focusing on the micro issue. Focus on the macro issue. Why the present construct of the law, the way it stands now doesn't get us the best of both worlds -- get you guys to overcome hurdles that consumers benefit from, but also allows the marketplace to kind of work fairly well?

MR. TAUKE: It is a micro issue.

REP. WEINER: I apologize. Go ahead.

MR. TAUKE: The macro issue is this, that when you try to apply rules that were built for a copper network to a fiber network it doesn't work. And so as a result, because you can't apply the rules you are stuck with the copper network, and you are inhibited from deploying the fiber network.

Now if you want better services in Manhattan or you want services in a rural area, you've got to get the fiber deployed in our network. And today the rules inhibit that.

REP. WEINER: Let me interrupt. The yellow light is on. I have DSL from Verizon. I have my cable provider. I have a Covad (ph) -- whatever that is. I have these other guys that are providing DSL. It's working. We've got all of these things. The state regulators are happy. I mean, we have individual complaints about service and we're going to shop around. The process seems to be working at least in my neighborhood. I have all these choices, and I'm shopping around.

MR. TAUKE: Well, you're lucky, but it isn't working in every neighborhood, and that's part of the difficulty because in every neighborhood they don't have all the options. In fact, some of them don't have any option at all.

REP. WEINER: And part of it is because --

REP. SENSENBRENNER: The gentleman's time has expired.

I would like to thank the witnesses for putting up with us for the last two hours-plus. I'd like to thank the members of the committee for their very vigorous questioning. This is an issue that has been debated for the last five years. I don't know if it will be debated for the next five years, but we'll try to make some sense of it next week with the mark-up. So thank you again, and the committee stands adjourned.

END

LOAD-DATE: June 8, 2001